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Vietnam Airlines Aims To Add Routes As Network Carrier

Singapore and Bangkok have traditionally been the main international gateways into Southeast Asia, but Vietnam's national carrier and airport authority will be working to change that.

Vietnam Airlines CEO Pham Ngoc Minh says they hope that Ho Chi Minh City's Long Thanh International Airport, which is due to open in 2020, will become Southeast Asia's new international gateway and help the airline fulfill its goal. “Vietnam Airlines has ambitions to be a network carrier for the [Asia-Pacific] region,” says Minh. “We will try to match Thai Airways International and Singapore Airlines (SIA) in the region, and by 2013 will hopefully be third in the market behind them, he says. “Then maybe in 2020, we will be the successful number two airline after SIA,” he adds.

The airline serves Paris Charles de Gaulle Airport and Frankfurt Airport and began twice-weekly services to London Gatwick from Ho Chi Minh City and Hanoi in December. Minh says there are plans to launch flights to second-tier international gateways in Europe “in the next couple of years,” perhaps Amsterdam, Berlin and Milan. “We also see potential in India and South Asia and maybe the Middle East,” he adds.

Minh concedes that Vietnam Airlines has found it tough succeeding in London but says it will stay there. Its services to Europe have an 80-82% average passenger load factor, but London is tracking at nearly 60%, he says.

The airline is also preparing to begin serving the U.S., with Los Angeles as its first destination, but it cannot set a date until the FAA completes an audit.

SIA and Thai Airways are its biggest competitors because passenger statistics show the international routes with the most passenger traffic from Vietnam are those to Bangkok and Singapore.

Vietnam Airlines' strength is that it has an extensive domestic network as well as ones into neighboring Cambodia and Laos. It is also working to capture traffic in and out of Myanmar, which is just opening up to international tourism. Thai Airways, however, still has more traffic out of Myanmar than Vietnam Airlines. Singapore-based carriers serve Myanmar successfully as well.

Another big advantage for Vietnam Airlines is that Cambodia, Laos, Myanmar and Vietnam signed an open-skies agreement in 2006 allowing unlimited scheduled passenger and cargo flights among the countries by their designated carriers. Vietnam Airlines, for example, is permitted to fly to Cambodia, then onto Myanmar, says the Civil Aviation Administration of Vietnam (CAAV) director of air transport, Vo Huy Cuong.

Vietnam Airlines also manages and owns 49% of national carrier Cambodia Angkor Airlines. And, in its domestic market, it owns Vietnam Air Service, a general aviation operator that flies three ATR 72s. It also has a 70% stake in Vietnamese low-cost carrier Jetstar Pacific, which in the next few years plans to increase its fleet to 15 aircraft from seven. The only other domestic competitors are low-cost carrier VietJet, with three AirbusA320s, and full-service Air Mekong, with four BombardierCRJ900s.

Cuong says no other commercial start-ups are in the pipeline in the country. The only applicants awaiting air operator certificates—Blue Sky, VietStar and Seagull—are would-be general aviation operators that plan to use helicopters, fixed-wing and amphibious aircraft, respectively, he says.

Vietnam Airlines will also face more competition from Middle Eastern carriers. Cuong says the CAAV signed an air services agreement in December with the United Arab Emirates. Emirates will start a daily Dubai-Ho Chi Minh City service in June with A330-300s, before increasing capacity with Boeing777s, says Cuong. Emirates cannot fly A380s to Ho Chi Minh City or Hanoi, which have 45-meter-wide (148-ft.) runways, because the A380 needs ones 60 meters wide, he says. Etihad Airways has been designated to fly to Vietnam but has yet to put in its request, he adds.

The CAAV granted the UAE fifthfreedom rights beyond Vietnam to destinations such as Bangkok and Mumbai, India, in return for fifth-freedom rights beyond the UAE to Europe, says Cuong. The CAAV has also negotiated an air service agreement with Saudi Arabia, which is waiting for Saudi signature, he adds.

This liberalization is part of efforts to encourage airlines to serve Vietnam and help the country become an international air hub. However, balancing the interests of a national carrier and national airports operator can be tricky.

Officials at the CAAV and Vietnam Airlines are also careful to mention both Ho Chi Minh City and Hanoi when asked which is the country's main international gateway. The former has more traffic, and the new international airport project there indicates the government sees it as the main gateway. The city was chosen as home to the headquarters of the newly formed national airport operator Airports Corp. of Vietnam (ACV), as well.

The government merged the three state-owned airport groups so they can share expertise and financial resources, says Nguyen Cong Hoan, ACV director of planning and investment. Some Vietnamese airline executives also note that the national airport operator will be able to secure financing for airport development more readily.

One of the ACV's first projects, Long Thanh International Airport will be built on a green-field site about 30 mi. northeast of Ho Chi Minh City. Vietnamese Prime Minister Nguyen Tan Dung approved the master plan in June and said construction will start in 2015, says Hoan. The first phase is slated to be completed in 2020 and include two runways and terminal capacity of 25 million passengers per year, he says. That phase is expected to cost $7 billion and will be funded from various foreign and domestic sources, says Hoan.

He concedes, however, that the ACV and its predecessors have no experience tapping foreign investment, with the exception of an overseas development loan Japan granted Vietnam for construction of a second passenger terminal at Hanoi's Noi Bai International Airport. That building is due to be completed by the end of 2014.

Both Hanoi and Ho Chi Minh City airports can expect to see a huge increase in traffic from Vietnam Airlines. The carrier's fleet now comprises 10 777-200ERs, 11 A330s, 38 A320/A321s, two Fokker 70s and 13 ATR 72-500s.

Head of fleet planning Nguyen Thi Thanh Van says another 26 A321s are on order, for delivery in 2012-14, and the airline is evaluating A320-family NEOs for delivery in 2015-20. She also says 10 A350-900s are on order, with an agreement to lease four more, two from CIT Aerospace and two from International Lease Finance Corp. (ILFC). The carrier has ordered eight Boeing 787-9s and agreed to lease three more from ILFC and eight from Vietnam Aircraft Leasing Co. (VALC), says Van. It plans to take delivery of its first A350, a leased aircraft, and first 787-9 in 2015.

The airline also aims to order at least 15-20 jet aircraft with fewer than 150 seats, Minh says. Van says the types being considered are the Bombardier CSeries, Mitsubishi Aircraft MRJ and Sukhoi Superjet. She declines to say when a winner will be chosen or deliveries would begin.

By 2020, Vietnam Airlines will have 170 aircraft, says Van, perhaps more than SIA or Thai Airways.

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